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Learn what s a Veblen good

VEBLEN GOOD

Welcome to professrsavings.com, we teach finance basics.

Today we will teach you what veblen good is in two minutes.

You have probably seen this term in your economics book but understanding this can help you understand the consumer market a bit better.

Some basic history.

Named after economist Thorstein Veblen who introduced the term “conspicuous consumption” a Veblen Good.

This occurs when demand increases as its price increases because consumer see it as an exclusive status symbol. 

We will get into an example in a bit. Hold on!

Veblen Good has an upward sloping demand curve which is different since most goods which have a downward sloping demand curve because demand goes down as price goes up.

Veblen Goods are high quality items that many people desire. 

A common example maybe a luxury watch with a brand that many people have a “cult” following such as a special edition.These goods are priced so high that only the super rich can afford.

Here is how it work.

The higher the price, make it unlikely other consumers can afford them. 

And the more buyers perceive them to signal great wealth and success.

If a Veblen’s Good price decreases, demand will decrease since the status aware consumers will see it as less exclusive. 

Jane is a multi-millionaire owner of Cupcake Inc with over 50 bakeries She can afford any car he wants.  Jane can buy a popular sedan for $20,000 for practical use.  Instead, she decides to purchase a $300,000 sports car so that people will know someone important and successful is around town.

Jane loves the feeling she gets from driving a car that almost no one else can afford around town. For Jane her $300,000 car is a symbol of her status and accomplishment as a super entrepreneur. 

A $20,000 or even $300,000 car wouldn’t satisfy her because too many other people could afford and possibly drive the same sports car.

That simple.

Professor Savings signing out. Make sure you subscribe to our channel so you can learn more about finance basics.

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